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NAD Refers StubHub Pricing Claims to FTC

After StubHub.com declined to comply with the National Advertising Division’s recommendations with regard to its pricing claims, the self-regulatory body referred the issue to the Federal Trade Commission (FTC) for review.

As part of its routine monitoring program, the NAD reviewed online pricing disclosures by StubHub for its online ticket exchange website. When a consumer searches for tickets on the StubHub website, he or she first locates an event and chooses from a number of ticket options listed by price. After that, a consumer must log in as a current member or sign up for an account, advance two additional screens to the “review and buy” page, and click on a hyperlink before learning the service fee charges.

The question for the NAD: whether StubHub’s disclosures of fees charged for tickets, found on the checkout page of the website, were sufficiently clear and conspicuous or whether they conveyed a misleading message about the total price of tickets purchased on the StubHub website.

Emphasizing that consumer expectations are “a key factor” in whether practices are misleading, StubHub asserted that reasonable consumers searching for tickets online expect some fees to be added at checkout “because the universal practice followed by all major online vendors and resellers is to list fees in this manner.”

To bolster this position, StubHub recalled its challenge to these industry practices, when the company attempted to list its prices inclusive of fees before consumers reached the checkout page. Competitors failed to follow suit, StubHub told the NAD, “which resulted in consumers mistakenly believing that StubHub prices were not competitive compared with other providers, resulting in a loss of marketshare.”

Its disclosure practices complied with relevant case law as well as the FTC’s Dot Com Disclosures, the advertiser argued. The FTC guidance advises that “[d]isclosures must be effectively communicated to customers before they make a purchase or incur a financial obligation,” but that “[d]ifferent considerations apply, however, in different situations.” Because consumers expect sellers in the online ticket market to add standard fees to the transaction, StubHub told the NAD that its disclosure was appropriately placed on the checkout page.

But the self-regulatory body was not swayed by industry practice or StubHub’s reliance on consumer expectations.

While industry practice may suggest reasonable consumers understand that additional fees will be added, it could also mean the opposite, the NAD said—that consumers tend to rely on pricing claims made during an initial advertising interaction when comparative shopping rather than expecting the total price will be revealed only at checkout.

“The same standards of truthfulness and accuracy pertaining to all advertising claims apply to pricing claims,” the NAD wrote. “NAD determined that the consumer’s initial contact with the price of the ticket reasonably conveys a message that the price displayed is the total price (or close to the total price) for the ticket. Although consumers may generally understand that a ticket purchase may add taxes or shipping fees, consumers expect that the price displayed is the total price for the ticket, exclusive of taxes or other minor fees for additional services like shipping.”

Adding to the potential consumer confusion, the service fees are added to the total price of the ticket purchase and are not separately itemized, the NAD said. Only if a consumer clicks on the hyperlink labeled “pricing details” will he or she view the breakdown of fees charged, which is not a standard amount, as the service fees range from 24 to 29 percent of the ticket cost.

“Although a purchaser may expect that some fees will be added for online ticket purchases, a reasonable consumer may not expect that a fee of 24 to 29 percent of the ticket price will be added at checkout, especially because many of the tickets are being sold at prices significantly above the face value of the ticket,” according to the decision. “And because fees range from 24 to 29 percent of ticket costs, a purchaser cannot know the exact amount of the fee charged before reaching the checkout page.”

This leaves consumers unable to compare ticket prices among vendors, which also generally undermines trust in the marketplace, the NAD said.

“The ticket prices displayed by StubHub after an initial ticket search are advertising a price and thus making a claim,” the self-regulatory body wrote. “If material fees are added to the ticket price at checkout, these fees should be disclosed clearly and conspicuously when the initial price is advertised.”

However, StubHub declined to comply with the NAD’s recommendations and elected to forgo an appeal, pointing out that it was following standard industry practice. Pursuant to its procedures, the NAD referred the case to the FTC for possible enforcement action.

Why it matters: The NAD was not persuaded by StubHub’s argument that its pricing disclosures not only complied with the law and FTC guidance, but represented standard industry practice. If the FTC agrees with the self-regulatory body and takes action against the advertiser, such action could have a major impact on the ticket sales industry.

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